Mongolia: Strength in securities

In late April, local officials confirmed to local media that a new securities law, developed two years ago with assistance from the IMF and the World Bank, would be presented to the Great Khural (parliament) in May, adding that the new legislation was “essential” for the flurry of high-profile initial public offerings (IPOs), such as ETT, expected in the coming years.
“This law will solve many unresolved issues, such as savings books and duplicated registrations,” D Bayarsaikhan, the head of the Financial Regulatory Commission (FRC), told local media.
Bayarsaikhan said the securities law will prove crucial in ensuring the success of a strategic agreement between the MSE and the London Stock Exchange (LSE). The LSE is currently helping the MSE to transform its exchange to meet best international practice.
Under the deal, finalised in April 2011, the LSE will provide the MSE with market technology, such as software licensing, training and maintenance, staff training, and advice on how to develop and eventually privatise the MSE.
“Given the LSE’s management and modernisation of the MSE, important changes to the regulatory framework and the government’s proposed privatisation plan for many state-owned enterprises – a large number of which are expected to be privatised through IPOs on the MSE – I believe there are significant opportunities for investing in the local exchange over the months and years to come,” Travis Hamilton, the managing director of Singapore-based Khan Investment Management, told Bloomberg television in May.
The MSE has witnessed impressive growth in recent years; in 2010 the exchange recorded the best returns globally when share prices climbed 121%, and in 2011, it finished second best, with a rise of 73%.
Such figures likely helped motivate the decision of FMG, a specialist emerging markets investment firm, to launch a Mongolian-focused investment fund in April. FMG Mongolia will have a minimum investment of $10,000 and focus on the top-25, most-liquid domestically listed companies on the MSE. In its launch portfolio, the five-largest holdings are: APU, a beverage company; Remicon, a cement and concrete product manufacturer; mining firms Sharyn Gol and ETT; and Talkh Chikher, a confectionary company.
“[Mongolia] has huge future revenues potential and is blessed with key resources for a hungry, growing world, as well as the cost advantage of being right next door to the largest commodity consumer of them all, China,” said Arild Johansen, a partner at FMG and lead manager on the fund.
Despite the investor enthusiasm, concern is mounting over what is perceived to be the growth of “resource nationalism” in the run-up to the parliamentary elections in late June. This is particularly associated with Nambar Enkhbayar, an opposition politician and head of the Mongolia People’s Revolutionary Party (MPRP), who was recently arrested on corruption charges. “He is the father figure for resource nationalism, and the MPRP will definitely try to capitalise on this and maximise their chances to get more MPs in parliament,” Dale Choi, an analyst with Ulan Bator-based Frontier Securities, told news agency Reuters in late May.
With massive projects being spearheaded by key figures – Prime Minister Sükhbaataryn Batbold is overseeing the LSE-MSE partnership – it is clear that the government is placing a high priority on improving the credibility of the country’s capital markets. However, the MSE’s market capitalisation of around $1.5bn is small in international terms, and the exchange currently only trades for two hours a day, five days a week.
If the government can maintain its open attitude to foreign expertise in enhancing regulation of the MSE, the resulting development will likely see it become more attractive to both domestic and overseas investors. With large mining IPOs expected in the coming years, the bourse has the opportunity to play a key role in the country’s growth story.

Oxford business group

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Posted by The UB Post
on Jul 26 2012. Filed under Opinion.
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